Second Circuit Summary Order Covering Batson Issue (Striking Women on Jury), Refusal to Grant Immunity to Defense Witnesses, Relevant Conduct for Co-Conspirators (4/16/15)

The Second Circuit issued a summary order (nonprecedential) that I think is good reading for law students and lawyers (at least lawyers young in their practices).  United States v. Platt, 2015 U.S. App. LEXIS 6157 (2d Cir. 2015), here.

Highly summarized, the defendants, Jill Platt and Donna Bello, organized a pyramid scheme promoted to women using the conceit of "gifts" in table offerings (such as dessert, entree, etc.)  All income is taxable, but gifts are excluded from taxable income.  Hence, the participants in the scheme (including the defendants) claimed that the cash they received were gifts and thus not taxable.  They were wrong.

The defendants were convicted for defraud / Klein conspiracy (18 USC 371, here), tax perjury (§ 7206(1), here), wire fraud (18 USC § 1343, here), and conspiracy to commit wire fraud (18 USC § 1349, here).  All except the conspiracy charges were multiple counts of conviction.

The opinion summarizes the defendants' arguments and its holdings in the following introductory paragraph:

On appeal, defendants contend that the government's use of peremptory strikes to eliminate female members of the venire violated Batson v. Kentucky, 476 U.S. 79 (1986); the district court abused its discretion by admitting the testimony of attorney William O'Connor and by declining to compel immunity for three defense witnesses, thereby also violating defendants' constitutional right to present a defense; and the district court abused its discretion in admitting the expert testimony of Dr. Kenneth Kelly. We find these arguments to be without merit and accordingly affirm the judgments of conviction. However, defendants also challenge their sentences, contending that the district court penalized them for exercising their right to trial and imposed sentences that were otherwise procedurally and substantively unreasonable. We find that the district court erred by failing to make the particularized findings required by United States v. Studley, 47 F.3d 569 (2d Cir. 1995), and remand the case for resentencing.

This disposition is a summary order, hence it is nonprecedential in the Second Circuit.  Still, it is a good presentation of the points it covers.  So, let's take a look at the analysis.

1.  The Batson Claim for Peremptory Challenge of Women.

The Supreme Court has held under Batson [Batson v. Kentucky, 476 U.S. 79 (1986), here] and its progeny that the Equal Protection Clause prohibits the government from using its peremptory challenges to exclude potential jurors for a discriminatory purpose. See 476 U.S. at 89; J.E.B. v. Alabama ex rel. T.B., 511 U.S. 127, 146 (1994) [here] (extending Batson to discrimination in the selection of jurors on the basis of gender). 

Without elaborating on the analysis further, suffice it to say that the district court accepted the prosecutor's gender neutral explanations of its strikes of women.  Finding no abuse of discretion, the Court affirmed the district court's decision.

2.  Admission of Attorney's Testimony.

The defendants relied on a good faith defense.  In order to overcome that defense, the Government offered and the trial court allowed a tax attorney to testify that he had informed a group of the participants (but not including the defendants) "that the $5,000 payments received by a dessert were not gifts but in fact would be considered taxable payments by the IRS."  He further testified that he did not "know if his statements had been conveyed to them [the defendants]."  But, the opinion says

"there was evidence that third parties present at the meeting with O'Connor [the tax attorney] communicated with defendants about the advice received." 

* * * * 

The testimony here was of limited probative value as the government did not offer evidence that the third parties actually conveyed their knowledge [from O'Connor] of the gifting tables' illegality to defendants.

I don't know what precisely to make of this since the statements appear inconsistent.  I think in the paragraph quoted below, the Court thinks that there was at least a permissible inference that a participant in the meeting would have conveyed the information to the defendants.

The Court held that the evidence was "undoubtably relevant because it tended to undermine defendants' good faith defense that they relied on the advice of attorneys, transmitted by other gifting table participants, that the tables were operating legally."  See also FRE 401, here.  [As an aside, I have not consciously encountered the word "undoubtably" before, but find that, while it is a word more or less meaning the same as undoubtedly, some feel that it is nonstandard English (per Wikitionary entry here).] Thus, under standard evidence analysis, being relevant, the threshold test for admissibility at trial was met.

The Court then addressed the issue of whether, though relevant, the evidence should have been excluded because of the danger of unfair prejudice.  FRE 403, here.

However, the district court may exclude even relevant evidence "if its probative value is substantially outweighed by [the] danger of . . . unfair prejudice." Fed. R. Evid. 403. The testimony here was of limited probative value as the government did not offer evidence that the third parties actually conveyed their knowledge of the gifting tables' illegality to defendants. See Kaplan, 490 F.3d at 120 ("[E]vidence regarding the knowledge of individuals other than the defendant should be admitted only if there is some other evidence in the record . . . from which to conclude that the defendant [9]  would have the same knowledge.") (emphasis added). 

However, we are not persuaded that the limited probative value of this testimony was substantially outweighed by the danger of unfair prejudice. Unfairness does not result from the tendency of evidence to disprove a party's case but refers instead to an "undue tendency to suggest decision on an improper basis, commonly, though not necessarily, an emotional one." Fed. R. Evid. 403 advisory committee's note. Unlike Kaplan, the jury here was not "required to draw a series of inferences, unsupported by other evidence," to connect O'Connor's testimony to defendants' own knowledge. Kaplan, 490 F.3d at 122. A jury, crediting O'Connor's veracity as a witness, could reasonably infer that Brennan, who was an active participant in the gifting table scheme would have accurately conveyed O'Connor's advice when discussing it with defendants. "The logical inferences resulting from proffered evidence do not engender the unfair prejudice against which Rule 403 is directed." United States v. Diaz, 878 F.2d 608, 615 (2d Cir. 1989) (internal quotation marks omitted). Accordingly, we detect no plain error in the district court's admission of this testimony.

3.  Refusal to Compel Immunity for Defense Witness.

The defendants sought to compel the Government to extend immunity to three defense witnesses who, defendants claimed:

would have rebutted the testimony of O'Connor [the tax attorney] and Edward Marcus, an attorney who testified that he never advised gifting table participants that the tables were legal, and would have generally bolstered defendants' good faith defense.

Those witnesses feared prosecution out of the scheme and either had not requested or had not been given immunity by the Government.  Here is the discussion:

We review a district court's decision not to compel immunity for abuse of discretion, and consider whether "(1) the government has engaged in discriminatory use of immunity to gain a tactical advantage or, through its own overreaching, has forced the witness to invoke the Fifth Amendment; and (2) the witness' testimony will be material, exculpatory and not cumulative and is not obtainable from any other source." United States v. Ebbers, 458 F.3d 110, 118 (2d Cir. 2006) (internal quotation marks omitted). So "few and exceptional" are the situations in which the government is required to grant immunity to defense witnesses that "in the nearly thirty years since establishing a test for when immunity must be granted, we have yet to reverse a failure to immunize." United States v. Ferguson, 676 F.3d 260, 291 (2d Cir. 2011). Nor does this case present such a situation. 

Evidence before the district court indicated that Brennan, Dillon, and Capotosto were potentially subject to prosecution for their participation in the gifting tables, which is a legitimate reason to decline to compel immunity. Brennan and Dillon had each received a letter from the government informing them that they were targets of federal investigation. In addition, the district court determined that Capotosto's potential criminal liability was evident from secretly recorded conversations of gifting table participants, her admissions to government investigators, and her grand jury testimony. It is well established that "[t]he Government may reasonably refuse to grant immunity where a witness is a potential target of criminal prosecution." United States v. Rosen, 716 F.3d 691, 704 (2d Cir. 2013) (declining to reverse failure to immunize where district court found witness was "at a very minimum, . . . prosecutable for tax evasion arising out of the same general bundle of events . . . that [we]re involved in th@ (sic) case") (internal quotation marks omitted). Nor, in any event, was there any convincing evidence of prosecutorial overreaching or manipulation of the immunity device for tactical advantage. Accordingly, we find that the district court did not abuse its discretion in declining to compel the government to immunize defendants' witnesses.

I have covered the issue before in the following blogs:

• Defense Witness Immunity (Federal Tax Crimes Blog 10/10/12), here.
• Defense Witness Immunity: Prosecutor Discretion and Compelling Testimony of a Reluctant Witness in Criminal Cases (Federal Tax Crimes Blog 9/6/11), here.

4.  Right to Present a Defense.

In a related argument, defendants asserted that their right to present a defense was denied because of the trial court's failure to compel immunity.  The Court cryptically concluded:

Even assuming arguendo that the government should have been compelled to immunize defendants' witnesses, we conclude that the testimony would not have created reasonable doubt that did not otherwise exist. The government presented substantial evidence including direct testimony, emails, and meeting notes from which the jury could have concluded that defendants knew that gifting table payments were taxable income. We find therefore no violation of defendants' right to present a defense.

5.  Admission of expert witness (Kelly) testimony 

The discussion is a bit cryptic, but apparently an expert witness, Dr. Kenneth Kelly, testified that the promotional materials of the scheme described a pyramid scheme.  The defendants claimed that this testimony improperly gave a legal conclusion or possibly even an inference as to the defendant's state of mind.  See FRE 704, here:

Defendants concede that Dr. Kelly did not refer to the gifting tables as illegal or fraudulent and they fail to point to any of his remarks expressly stating or inferring defendants' knowledge of the tables' illegality. In his testimony Dr. Kelly opined, based solely upon literature produced by defendants and other table participants, that the structure of the gifting tables met the definition of a pyramid scheme, but he acknowledged that his opinion was not based upon the actual operation of the tables nor on the conduct of the individuals involved. In so doing Dr. Kelly neither impermissibly relied "directly upon the language of the statute and accompanying regulations" under which defendants were charged, United States v. Scop, 846 F.2d 135, 140 (2d Cir. 1988), nor drew "conclusions as to the significance of [defendants'] conduct or evidence in the particular case," United States v. Boissoneault, 926 F.2d 230, 233 (2d Cir. 1991). Similarly, it is clear that Dr. Kelly's testimony did not "stat[e] the bottom-line inference" that defendants knew the tables were illegal. DiDomenico, 985 F.2d at 1165. We conclude that the district court did not abuse its discretion in admitting Dr. Kelly's testimony, and find no merit in the argument that the probative value of his testimony was substantially outweighed by the factors defendants identified.

6. Challenges to Sentencing.

[Note to readers, I moved this discussion to a separate blog entry, titled Pinkerton and Sentencing for Jointly Undertaken Activity (Federal Tax Crimes Blog 4/17/15), here.